You've all heard big tech saying "oh we overhired during COVID, now covid's over and we need to cut back" bull crap. Yeah that might be true to an extent but the change to IRS section 174 is a blow to the nuts. In 2021, say your company made 1m revenue, and R&D expense was 1m, you would pay 0 for corporate tax. Starting in 2022, that trick won't work anymore. Microsoft paid 4.8b in additional taxes, Netflix an additional 368m and so on. Tech companies tried to raise awareness so this change can be reverted but mainstream media didn't give a f*** It's up to us to raise awareness and stop this layoff massacre. https://blog.pragmaticengineer.com/section-174/ TC 160
Do they have to call it R&D though?
You can all thank Trump for this f up. This is result of Tax Cuts and Jobs Act (TCJA) passed by the Republicans under Trump Administration back in 2019. The changes went into effect from 2022. Really another legacy of Trump that live on today long after his presidency just like overturning of Roe v Wade. "Make America Great Again" lol https://taxfoundation.org/research/all/federal/research-development-expensing-tcja/
And somehow the democrats didnt reverse this change when they had the full control of presidency, senate and the house. They could have included this in their inflation act, but they didnt. I wonder what the reason is 🙂
Most companies try and use the R&D tax credit for software development. The layoffs aren’t happing because of a tax law change that went into effect years ago.
It went into effect 2022 but people are just too dumb. They will believe whatever their favorite tiktokers are regurgitating. The timing is convenient though. The biden and democrat campaign need to find some reason to win the votes
Do other companies get to write off labor? If so, why is tech special in this regard? Edit: Graphic appears to be wrong. Labor is still deductible. Non-labor investments in R&D are not (has to be spread over 5 years). So buying physical hardware, physical locations, etc.
Precisely. From an employee point of view this is probably more good than bad. It means that it should be immediately "cheaper" for companies to directly employ folks doing research, as opposed to contracting research out.
Big tech loves this shit, only startups are suffering. Ultimately they’re not paying any more in taxes they are just forced to give the gov a free loan for a few years. The layoffs is a response to fewer startups able to survive because of this. This consolidates and brings more power to big tech, hence they’re now flexing that muscle. Supply and demand and all that.
Amortization means eventually the full R&D expense will be tax deductible. It just spreads it across 5 years. This is really bad for small companies who need the immediate cashflow to survive, but great for the big guys who can just afford it. This coupled with higher interest rates probably killed a lot of startups in 2022-2023. Trump in action.
I’m sure big tech can find a way to avoid the tax, just like they do for all other taxes. This prob disproportionately impacts small and midsize businesses more
For a change, something useful and interesting posted to blind. Thanks OP.
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The job market is absolutely brutal right now
R&D expense should absolutely be deducted from profits for calculating taxes… it’s not profits if you paid it out to your staff!!!!
It's f-ing bs. It's like gov wants big tech to offshore jobs
It kills like it is deductible but just capitalized and amortized